Shared Flashcard Set


Regulation 3

Additional Accounting Flashcards





Corporation Tax Consequences


During Formation


General Rule: No gain or loss recognized when corporates issue stock in the following transactions


Formation: Issuance of Common Stock

Reacquisition - Purchase of Treasury Stock

Resale - Sale of Treasury Stock 


Apart of the HIDE IT - (T = transactions of corporations)

Basis of Property Corporations Recieve During Formation

The general rule is that the basis received from transferor/shareholder: 




Adjusted Basis (NBV) of shareholder PLUS any gain recognized by shareholder 




Debt assumed by corporation (transferor may recognize gain to prevent a negative basis) 


the corporation's basis is limited to aggregate fmv value of property (to prevent property with "built in losses" to corporation)

Shareholder Tax Consequences upon Formation/Contribution to Corporation

General Rule: No gain or loss recognized if: 


Immediately after, transferors/shareholders own at least 80% of voting stock & at least 80% of non-voting stock


NO BOOT RECIEVED - no cash withdrawn or receipt of debt securities (bonds) 


Excess COD that exceeds adjusted basis of total assets generates gain-> considered boot. 

Basis of Common Stock (to shareholders) upon formation



Cash- Amount Contributed 

Property- Adjusted Basis (NBV) - Adjusted basis of property is reduced by any debt on property (COD) assumed by corporation 


Adjusted Basis of Transferred Property

+ FMV of services rendered

+ Gain recognized by shareholder

- Cash Received

- Liabilities assumed by corp

- FMV of non-money boot recieved

= basis of common stock 

Basis in Common Stock received for Services
Must recognize the FMV as ordinary income. 

Book Income Vs. Taxable Income


Schedule M-1 


Reconcilation between Tax Return and Financial Statements 


Both Permanent & Temporary Differences 

Gross Income for Corporations

Cash recieved in advance of accrual GAAP income is taxed

temporary differences: 

-interest income received in advance

-rental income received in advance

- royalty income in advance 


permanent differences: 

some GAAP items are NOT includible in taxable income: 

-Interest income from muni or state obligations/bond

-proceeds from life insurance on life of an offer where corp is beneficiary

-FED income taxes are NOT deductible on tax return 

Trade or Business Deductions

Expenses attributable to the trade or business of the corporation are deductible. 


-All ordinary and necessary expenses paid or incured during the year. 


Trade or Business Deductions


a. Domestic Production Deduction


Business may deduct a specific percentage of their qualified production activities income. 


9% of the LESSER of:

QPAI- Qualified Production Activities Income


Taxable Income (disregarding the QPAI deduction)


QPAI Calculation: 

Domestic Production Gross Receipts

(Cost of Goods Sold)

(Other directly allocable expenses or losses)

(Proper share of other deductions)



Domestic Production: manufactured, produced, grown, extracted, constructed, enginneered, architecture



Limited to 50% of W2 wages paid


Trade or Business Deductions


b. Executive Compensation


A publicly held corporation may not deduct compensation expenses in EXCESS of $1,000,000 paid to the CEO or 4 most highly compensated officers unless based upon qualifying commissions or performance based plan. 


Entertainment expenses for officers/directors/10% or greater owners may only be deducted to the extent they are included in indiv's fross income. 


Trade or Business Deductions


c. Bonus Accruals


Bonuses paid by an accrual basis taxpayer are deductible in the yax year when all events have occurred, provided they are paid within 2 1/2 months after year end. 




Trade or Business Deductions


d. Bad debts



Trade or Business Deductions


e. Business Interest Expense



All interest paid or accrued during the taxable year on indebtedness incurred for business purposes is deductible. 


Interest on Loans for Investment are limited to taxable net investment income. 


Prepaid interest expenses must be allocated to the proper period to which it is related. 


General business interest expense is tax deductible. 


Trade or Business Deductions


f. Charitable Contributions


Maximum deduction of 10% of taxable income (before DRD, NOL, Cap. Loss carryback, US prod act. deduction) 


May be carryforward 5 years.. 


Must be paid within 2.5 months of year end. 


Trade or Business Deductions


g. Business Lossess or Casualty Losses Related to Business


100% deductible 


a. Partially destroyed - loss limited to lesser of :

 decline in the value of the property

or adjusted basis in property immediately before casualty


b. Fully destroyed (NBV) - for the property hthat has been fully destroyed, the amount of loss is Adjusted Basis of Property




Trade or Business Deductions


h. Organizational Expenditure and Start Up Costs


Deduct $5,000 of organizational costs/start-up 


Amount over $5,000 up to $50,000 are amortized over 180 months  LOOK FOR MONTH 


Included: fees, legal fees, bylaws, accounting, state of incorporation fees


EXCLUDED: issuing/selling stock cost, cost of raising capital


Trade or Business Deductions


i. Amortization, Depreciation, and Depletion

Goodwill, covenants not to compete, franchise, trademarks, and trade names must be amortized over on a straight line basis over 15 years

Trade or Business Deductions


j. Life Insurance Premiums 


If the Corporation is named as a beneficiary- NOT tax deductible


If an insured employee (or family member), considered a fringe benefit and IS tax deductible. 


Trade or Business Deductions


k. Business Gifts

$25 per person per year

Trade or Business Deductions


l. meals & entertainment

50% deductible

Trade or Business Deductions


m. Penalties and Illegal Activities




Bribes, kickbacks, fines, penaloties, and other payments that are illegal under fed law are NOT deductible. 


Trade or Business Deductions


n. Taxes


Tax Deductile: State income, city income, federal payroll 


NOT Federal Income Taxes 


Trade or Business Deductions


o. Lobbying and Political Expenditures


NOT tax deductible


Lobbying expenses and political contributions are NOT deductible. 


Trade or Business Deductions


P. Capital Gains and Losses


Capital Losses are NOT tax deductible. 

Can only offset capital gains. 


Capital Losses can be carried back 3 years, and forward 5 years. 


Taxed at corporate tax rate, same as ordinary corporate income. 


Trade or Business Deductions


Q. Net Operating Losses


Carryback 2, forward 20. 


In calculating NOL: 

No charitable contribution deduction is allowed. 

DRD is allowed to be deducted BEFORE calculating NOL. 


Trade or Business Deductions


R. Inventory Valuation Methods 


In general, the tax method used can be used for income tax purposes. - must use accrual method of accounting. 


expense inventory when sold.


Trade or Business Deductions


S. General Business Credits


Combination of the follwoing: 


1. Investment Credit

2. Work Opportunity Credit

3. Alcohol Fuels Credit

4. Increased research creidt 

5. Low Income Housing Credit

6. Small Employer Pension Plan Start Up Costs Credit

7. Alternate Motor Vehicle Creidt 

8. Worker Retention Credit 


May NOT exceed NET INCOME TAX, less the greater OF 

25% of regular tax liabilty > $25,000 


"Tentative Minimum Tax" for the year


Carryback 1, Carryforward 20

Dividends Received Deduction

1st corporation is taxed

Owned 45 days before or after 


Percentage Ownership DRD

0%-<20% "Unrelated"     70%

20% to < 80% Large Investment 80%

80% or more Consolidate 90%


Limitd to a % of Taxable Income (Gross Income-deductions-charity) 

Except if taking the full % of Div. Income creates a corporate loss. 





Dividends Recieved Deduction


Entities for Which the DRD does NOT apply


Personal Service Corporates

Personal Holding Companies

Personally Taxed S Corporations 


"Don't take DRD's personally" 

100% Dividends Recieved Deduction

Affiliate Corporations- consolidated returns qualify for 100% deduction


Small business Investment Companies. 

Half Year Convention

Applies to personal property


Treated as having been placed in service/disposed of at the midpoint of the year

Mid Quarter Convention
If more than 40% of depreciable property is placed in service in the last quarter of the year, the mid-quarter convention must be used. 
Real Estate- Residential Rental Property

Apartments, duplex homes


27.5 years straight line


Real Estate


Non-residential Real Property


Office buildings, warehouses


39 year straight line


Real Estate


Mid-month convention


One half month is taken in the month that the property is placed in service/disposed of. 


Straight line depecriation is calculated on a monthly basis. 


Section 179 


Expense Deduction is Lieu of Depreciation


Limit of Expensing of $250,000 of new or used property that is acquired from an unrelated party during the year. 


Maximum amount is reducted dollar for dollar after $800,000 with complete phase out at $1,050,000


Deduction is not allowed if there is/or would create a net losss. 


Limits cost of SUV expensed to $25,000 


After 2011- limit of $25,000 with dollar for dollar over $200,000


Allowed on exhaustible natural resources (timber, minerals, oil, gas) 


Cost Depletion: remaining basis of property is divided by remaining number of recoverable units. The deduction is depletion unit rate multiplied by number of units sold.


i.e. 1000 units costing $1000, sold 20. 1000/1000 * 20 =$20


Percentage Depletion: limited to 50% of taxable income, may be taxen even after costs have completely recovered and there is no basis. "Preference for AMT" 


Section 1231

Depreciable Personal and Real Property used in trade or business, held for more than a year. Also, property and capital assets that have been involuntary converted. 


Capital Gain Treatment: special benefits by allowing capital gain treatment (tax rates of 5/15%) on net 1231 gains from sales, exchanges, involuntary conversions of certian NON capital assets. 


Ordinary Loss: Net Section 1231 losses are treated as ORDINARY LOSSES. 

- deducted immediately in full without consideration of capital gains since corps can not deduct cap. losses. 


Section 1245 


(gains only)


marchinery and equipment 


Personal properties used in trade or business for over 12 mos. 


Recapture all Accumulated Depreciation 


Lesser of gain recognized or all accumulated depreciation is recaptured as ordinary income - any remaining gain is capital under 1231 


Section 1250 


Gains Only




Real Properties used in trade or business over 12 mos. 


Recapture amount of depreciation in excess of straightline

Depreciation Recapture Rules for Personal Property

Machinery & Equipment


Loss=treated as ordinary loss

Ordinary Income= gain to extent of accumulated depreciation

Section 1231(capital) gain= garin for sale price in excess of original cost. 


Taxation of a Corporation


Filing Requirements


15th day of the third month after the close of its tax year 

(Dec. 31 year end --> March 15th) 


If falls on a legal holiday or weekend, due next business day


An extension of 6 months is availabele by filing Form 7004. 


Statue of limitation is same as indiv. (3 years, 6 with 25% misstatement) 




Taxation of a Corporation



Estimated Payments of Corporate Tax


Required to pay 1/4 estimated taxes on the 15th day of the 4th, 6th, 9th, and 12th month of the tax year. 


Underpayment penalty will be assessed if these payments are not payed and the amount owed is more than $500. 


Large Corporations: 

a. Must pay 100% of tax as shown on current year 


Other than Large Corporations:

a. 100% of tax shown on return for current year

b. 100% of tax shown on return for preceding year. (must have owed tax in previous year) 




Taxation of a Corporation


Consolidated Tax Return


An affiliated group of corporations may elect to be taxed as a single unit. 


Must have been members of an affiliated group at some time during the tax year and each member of group must file a consent.


Common parent owns

80% or more of the voting power of all outstanding stock AND

80% of more of the value of all outstanding stock of each corporation


-Corporations where an individual NOT a corp owns more of the stock may not file a consolidated return (bro-sis corporation)


Advantages: Losses can offset gains across corporations, DRD deduction of 100%


Disadvantages: mandatory compliance with complex regulations, tax credits may have some limitations, election to file consolidate returns is bind for future years and only disbanded by permission from IRS.  


Taxation of a Corporation


Corporate Alternative Minimum Tax


Corporations are subject to a AMT of 20% on AMTI less an exemption amount. 

Regular taxable income 

Adjusted for LIE (Long term contracts, installment sale dealer, excess depreciation) 

Addback Preferences (Percentage depletion, private activity, pre '87 excess depreciation) 

Increase or Decrease your Adjusted Current Earnings (Muni interest income (tax exempt interest), Increase life insurance, Non S/L depreication, DRD for unrelated (70%)) 


= Minimum Taxable INcome

(AMT Exemption)--> $40,000 less 25% of AMTI > $150,000


x 20%

=Gross AMT

(Foreign Tax Credit)

=Tentative Minimum Tax

(Regular Tax Liability)



Minimum Tax Credit (MTC) can be used as a credit against future regular tax, can be carried forward indefinitely, may not be carried back. 

Accumulated Earnings Tax

Imposed on regular C corporations whose accumulated/retained earnings are in excess of $250,000 if improperly retained instead of being distributed as dividends. 


Reg. corporations are entitled to $250,000 of lifetime accumulated earnings. 


Personal service corporations are entitled to only $150,000 


Not imposed on personal holding companies, tax exempt coproations, passive foreign investment


Additional tax rate for accumulated earnings is 15%. 


Must demostrate Business Need (specific, definite, feasible plans for use of accumulation)


E&P satisfies business needs--> then satisfies limits ($250,000)--> deduct all charity, capital losses, taxes--> excess is taxed at 15% 

Personal Holding Company Tax

Corporations set up by high tax bracket taxpayers to channel teir investment income to pay lower corp taxes than individual taxes. 


More than 50% owned by 5 or fewer individuals at any time during the last half of the tax year and having 60% of adjusted ordinary gross income from:


Net rent (if less than 50% of ordinary gross income)

Interest that is taxable

Royalties (not mineral, oil, gas, copyright)

Dividiends from unrelated domestic coproation


*NIRDs are making big money and need tax shelter in personal holding companies* 


Taxed at an additional 15% on net income not distributed - reduced by fed income taxes


Not subject to accumulated earnings tax. 

Personal Service Corporation Tax Rate

Primarily involved in one of the following fields:

accounting, law, consulting, engineering, architecture, health, actuarial science


can NOT use graduated corporate rates.


FLAT 35% rate. 

Corporate Earnings & Profits

Key factor in determining ability to pay dividends to shareholders. 

Corporate Taxable Income 

(Reductions to Current E & P)

a. Federal income tax expense

b. Non deductible penalties, fines, pol. contributions, other half of meals & entertainment

c. office life insurance policies (corp. beneficiary)

d. expenses for production of tax-exempt interest

e. non-deductible charitable contributions

f. non-deductible capital losses 

+Increases to Current E&P

a. Refunds of fed. income tax paid

b. tax exempt income

c. refunds of items not subject to regular tax under tax benefit rule

d. NOL deductions

e. Life insurance proceeds where corp is beneficiary

f. DRD used to calculate regular taxable income

g. carryover of capital losses that impacted income

h. carryovers of charitable contributions that impacted income 

i. non-taxable cancellation of debt not used to reduce basis 


Positive or Negative Adjustment

a. losses or gains that have different effects on E & P

b. changes in cash surrender value of certain life insurance policies

c. excess depreciation for E & P over that for reg. income tax 

d. differences in allowable deductions for organizational/start up expenses

e. installment income method adjustments

f. complete contract income vs. % completion 

g. amortization of intangible drilling cost

h. Section 179 expense per reg. tax vs. taxable deprectiation on the same property using a 5 yr life. 


= Current E & P

Accumulated E & P 

Amount that exists as of end of the tax year that proceeds to current year


 Beg. Accum. E & P 

+ Current E & P - distributions from Current E & P

- Distributions  from Accum. E & P

=Ending Accum E & P 

Corporate Distributions

Dividend is defined as distibution of property out of its earnings & profits. 


Current E & P --> taxable dividend - pro rata

Accum. E & P --> taxable dividend - chronological

Return of Capital --> tax free, reduction of basis of common stock

Captial gain distribution (no e&p/no basis)--> taxable income as capital gain 

Constructive Dividend

Not in the form of dividend, but as treated as such when payments are not in proportion to stock ownership. 


1. Excessive salaries paid to shareholder employees

2. Excessive rents and royalties

3. "loans" to shareholder with no intent to repay

4. sales of assets below fair market value

Stock Dividend

Distribution by a corporation of its own stock to its shareholders


Generally NOT taxable unless shareholder has a choice of receiving cash or other property. 


FMV at distribution data


Basis of a nontaxable stock dividend where new and old are identical is basis of old stock divided by all new and old shares. 

Shareholder Taxable Amount

Taxable amount of a dividend from a corporation's E & P depends on the entity of a shareholder 


if Individual Shareholder

Cash dividends- amount recieved

Property dividends- fmv of property recieved


if Corporate shareholder (subject to DRD) 

Cash dividends - amount recieved

property dividends- fmv of property recieved 


Corporation Paying Dividend Taxable Amount

General rule- payment of a dividend does not create a taxable event- a dividend is a reduction of E & P


However, if the corporation distributes appreciated property, they recognize a gain as if the property had be sold- (FMV - adjusted basis) 


Gain increases corporate current e & p- which means the dividend is now taxable to reciept like a dividend. 

Stock Redemption

When a corporation buys back stock from its stockholders. 


If qualifies as sale/exchange, gain or loss is recognized by shareholder. 


If not, the redemption is treated as a dividend to extent of corp's e & p. Corp can recognize gain (not loss) on any appreciated property distributed. 


Proportional- taxable dividend income to shareholder- generally corporation either redeems or cancels the stock pro-rata for all shareholders


Disproprotional- sale by shareholder subject to taxable capital gain/loss. Meaningful reduction in shareholder's ownership interest. 

Corporate Liquidations

Transaction is subject to double taxation.

Generally deductions liquidation expenses on final tax return. 


1. Corporation SELLS ASSETS, distributes CASH

Corporation recognizes gain or loss on sale of assets (Sale-Basis=TAXABLE gain or loss) 

Shareholders recognize gain or loss to extent cash > adjusted basis = taxable gain or loss


2. Corporation Distributes Assets to Shareholders

Corporation recognizes gain or loss as if it sold assets at FMV 

(FMV-basis=taxable gain/loss)

Shareholder recognizes gain or loss to extent of FMV recieved exceeds adjusted basis in stock

(FMV-basis=taxable gain/loss) 



Tax Free Reorganizations

Reorganizations include:

a. mergers or consolidations

b. acquistion by one corp of another corp's stock-stock for stock

c. acquisition by one corporation of another corporation's asset, stock for asset 

d. dividing corporation into seperate operating corporations

e. recapitalizations

f. change in identity, form, place of organization 


No gain or loss is recongized by parent or subisidary when parent (owns at least 80%) liquidates its subsidiary. Parent assumes basis of sub assets, as well as unused NOL, capital loss, or charitable contribution carryovers


Non-taxable event

Corporation- all tax attributes remain the same

Shareholder- retain original basis, recognize gain to extent received boot in the reorganizatoin 


Results in continuity of business. 

Control must continue to be 80% of voting power, and stock classes. 

Worthless Stock - Section 1244 Stock

When a corporation's stock is sold or becomes worthless, an original stockholder can be treated as having an ORDINARY LOSS (fully tax deductible) for up to $50,000 (or $100,000 MFJ). 


Any loss in excess of this amount would be be capital loss, which could offset capital gain. 


Must have been issued for money or other property, NOT stock or services. 

Within first $1 mil of stock offering. 


Small Business Stock


50% Exclusion of Gain


A noncorporate shareholder, who holds qualified small business stock for MORE THAN 5 YEARS, may generally exclude 50% of gain on sale or exchange of stock. 


Maximum exclusion and limited to 50% of greater of 

1. 10x taxpayers basis in stock

2. $10 million


Qualified corporation:

After Aug. 10, 1993

Acquired at original issuance

C Corporation only (not S Corp)

Less than $50 million of cap. at date of stock issuance

80% of value of corp assets must be used in active conduct


Includible portion of the gain is taxed at 28%

S Corporations

Small closely held corporations treated in a similar manner to partnerships, all earnings or losses of the corporation are passed through to the shareholders. 

No corporate level tax, individuals are taxed on their portion, regardless if distributed or not. 

Domestic corporation

May not file a consolidated tax return with C Corp

Eligible shareholders: 

Individual, estate, certain type of trusts

Not a nonresident alien 

Not a corporation or partnership

Qualified retirement plans, trsuts, charitable organizations can be. 

No more than 100 shareholders

Only one class of stock outstanding. 

Electing S Corporation Status

All shareholders (voting/nonvoting) must consent. 


By March 15th, retroactive to beginning of year. 



Effect of S Corporation Election on Corporation

S Corporations MUST adopt calendar year (Dec. 31 year end) unless valid business purpose for difference. 


Return due March 15th. 


General Rule- NO tax on corporate level



`1. LIFO Recapture Tax

2. Built In Gains Tax- when a C corp elects S corp status and FMV of corporate assets exceed ADJ basis on election date

UNLESS: S corp was never a C corp, sale or tranfer doesnt occur within 10 years of the first year the S election was made or S corp can demonstration that the appreciation occured after the S election 

Taxed at 35%

3. Tax on Passive Investment Income - 35% on lesser of net income or excessive passive investment income if S corp has accumulated C Corp E & P AND passive investment income (royalties, divdends, interest, rent) exceeding 25% of gross receipts 

Effect of S Corporation Election on Shareholders

Pass-through of Income/Loss to shareholders (on K-1)


Allocations to shareholders are made on pershare, per day basis


Losses are limited to shareholder's adjusted basis in S corp stock plus direct shareholder loans to corporation. Any loss disallowed by be carried forward indefinitely. 


Flow through to shareholder:

1. Ordinary income

2. Rental Income/Loss

3. Portfolio income

4. Tax exempt interest

5. Percentage depletion

6. Foreign income tax

7. Section 1231 gains/losses

8. Charitable contributions

9. Expense deduction for recovery propertion (Sec. 179) 


Deductible Fringe Benefits - non shareholder employees, 2% or less owners (over that are NON deductible unless included in W2 income) 


Accumulated Adjustment Account- tax effects of distributions are computed by using the AAA account. Starts at 0, increased by income and gains and decreased by corporate distributions, expense items and losses, and non deductible expenses. 

Computing Shareholder Basis in S Corporation Stock

Initial Basis

+ Income Items (seperate/nonseperate, including tax free income) 

+Additional Shareholder investments

-Distribution to shareholders

-Loss or expense items (permitted to deduct pro rata share of loss, limited to = basis + direct shareholder loans -  distributions)

= Ending basis 

Taxability of Distributions to Shareholders

Generally not subject to taxation for shareholders. 



To extent of basis in stock- nontaxable- ROC

In excess of basis - taxed as LTCG- Cap. Gain Distribution



To extent of AAA- non taxable, reduce basis, already taxed profits

To extent of C Corp E & P - taxed as dividend

To extent of basis in stock- nontaxable- ROC

In excess of basis - taxed as LTCG- Cap. Gain Distribution


Terminating Election of S Corp Status

Terminates as a result of the following: 


1. Holders of a majority of corporation's stock consent to voluntary revocation

2. Fails tomeet any or all of eligibility requirements (qualifications) for S Corp status - not domestic, corp owner

3. More than 25% of corp's gross receipts come from passive income for 3 consecutive years and corp had C corp e & p at end of the years. 


Have to wait 5 years before you can re-elect S corp status. 


Exempt Organizations


Section 501 (c)(1) - Act of Congress


Organized under an act of Congress as a US instrumentality


Does not require application

Must be declared exempt under IRC 


Exempt Organizations


Section 501 (c)(2)- Application Form 1024


Organized for exclusive purpose of holding title to property, collecting income from that property, and turning that income over to an exempt organization. 


Issues capital stock and otherwise acts as a corporation


Exempt Organizations


Section 501 (c)(3) Corporation


Includes a community chest: community fund, foundation organized for religious, charitable, scientific, public safety, educational purpose, foster national amateur sports competitions, prevent cruelty to animals & children. 


MUST APPLY & BE APROVED BY IRS to be Exempt Organization 


1. No part of net eraning may benefit any private shareholder

2. No influencing legislation

3. No polication campaigning 


Exempt Organizations


Section 509 Private Foundations



Include all Section 501 (c)(3) corporations other than these specifically excluded:

a. maximum (50% type) charitable deduction donees

b. broadly publicly supported organizations receiving more than 1/3 of annual income from members and public and less than 1/3 from investment income/unrelated business income

c. supporting orgaizations

d. publicly safety testing organization


Must file annual information return (Form 990-PF) disclosing substantial contributors and amounts of contributions 



Involuntary- when they become PUBLIC CHARITES, or violations of private foundation provisions


Voluntary Termination- notifying IRS, may distribute its assets to an organization qualifying for max 50% deduction or may operate as a public charity for 5 years. 

Unrleated Business Income

Gross income from any unrealted trade or business regularly carried on minus business deductions directly connected.

1. Derived froma n activity that constitutes a trade or business

2. Regularly carried on

3. Not substantially related to organization's tax exempt purposes

If use UNPAID workers, becomes RELATED. 

IF have UBI, must comply with IRC regarding installment payments of estimated taxes. 

Alllowed $1,000 deduction from UBI, thereonly UBI in excess of $1,000 is taxable. 

Excluded from tax: 

a. royalties, dividends, interest, annuities (excpt derived from controlled organizations)

b. Rents from real, personal, i and income from debt-financed property

c. gains/losses on sale or exchange of property not held for sale to customers in ordinary course of trade or business

d. income from research from college or hospitla

e. income from labor unions used to establish a retirement home, hospital, similar exclusive-use facility

f. Activities limited to exempt organizations by state law (bingo games)

g. value of securites loaned to a broker, and income recieved by a lender of securities to a broker, provided identical securites are returned

h. income from the exchange or rental of membership lists of tax exempt charitable organizations 

Membership Organizations

Usually taxed on gross income less deductions for exemption function income (dues, fees, charges)


If a social club makes a profit, profit is usually taxable


Exempt Organizations


Annual Return Requirements


Annual information return (Form 990) stating gross income, receipts, contributions, disbursements is required.


Due May 15th. Allowable extension of up to 6 months. 


Not required to file Form 990:

$50,000 or less gross receipts


High Schools - Religious

Religious Orders

Internal Support Auxiliaries

Societies-Missionary Related

Tax Exempted- Organized by Congress

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